Community Based Energy Development (C-BED) Tariffs – Minnesota

Recognizing the benefits that small-scale and locally-owned wind projects can have, in 2005 Minnesota lawmakers enacted legislation requiring all of the state’s electric utilities to establish Community Based Energy Development (C-BED) tariffs. The key aspect of the C-BED tariff is higher payments in the first 10 years of a power purchase contract. The only other state to enact such a law is Nebraska.

Minnesota has pioneered policies to promote locally owned wind turbines. In 2005, Minnesota’s legislature converted its existing 10 year, 1.5 cent per kWh production incentive payment for small wind projects into a favorable utility tariff. The C-BED tariff legislation eliminates the need to continually return to the legislature for additional appropriations for the production payments as C-BED ventures increased.

But the original 2005 law had a significant shortcoming. While defining majority local ownership, the law did not require a significant amount of the net income generated by the wind turbine to flow to local owners or other local entities. Contracts signed during this period channeled as little as 15 percent of the total net revenue generated to local owners. Furthermore, the federal production tax credit (PTC) limits the number of possible recipients, hampering local ownership.

This problem was partially addressed by the 2007 legislature, which required that 51 percent of the revenue generated from the sale of wind-generated electricity to go to local owners or "local entities." Although the new law is certainly an improvement, the way the term "local entities" is interpreted will still affect how much financial benefits really accrue to the local owners. It should also be noted tha the the 2007 law also expanded the C-BED tariff to be available to renewable energy projects other than wind energy.

Asecond problem with most existing C-BED ventures is that, although they are majority locally owned, they have very few local owners. Some have as few as 3 owners per $2 million turbine. Some C-BED ventures, however, do enjoy significant numbers of local equity owners. The New Rules Project believes that maximizing the number of local owners who benefit from C-BED incentives and regulations should be a high priority.

TheC-BED initiative eliminates the need for a 10-year, state-level production incentive payment by allowing wind projects to negotiate PPAs that are front loaded with higher payments for the first 10 years of a 20-year contract.